I have a friend who gifted a house 16 years ago to his sister. The sister now wants to transfer the property back to the brother. She is a higher rate taxpayer and the brother is a basic rate taxpayer. The property for the last 16 years was privately rented for 60% of the time and the brother lived there for the remainder of the time. What are the tax implications for both of them? 

 

A transfer between connected persons (and brother and sister are connected persons) is deemed to take place, for capital gains tax (CGT) purposes, at today's market value (see HMRC’s Capital Gains manual at CG14530). So, the sister will be deemed to have bought the house 16 years ago at its market value then and will be deemed to be selling it today at its market value today. The amount of money that changes hands is irrelevant. So, if it has gone up in value in the past 16 years, the sister will be making a capital gain, and after deducting the capital gains tax annual exemption (currently £12,000), she will have to pay 28% CGT on this gain.